Question 1

Draw a graph that shows producer surplus, consumer surplus, and deadweight loss in a market where the seller practices perfect price discrimination. Be sure to identify the demand curve, the marginal revenue curve, the marginal cost curve, and the profit maximizing quantity on the graph.

Accepted Answer

The perfect price discriminator sells Q3...

Question 2

Which of the following is not a requirement for a successful price discrimination strategy?

Accepted Answer

A)   A firm must have the ability to charge a price greater than marginal cost.
B)   Some consumers must have a greater willingness to pay for the product than other consumers, and the firm must be able to know what prices consumers are willing to pay.
C)   The firm must be able to prevent arbitrage.
D)   Transactions costs must be the same for all consumers.

Question 3

Many golf courses charge members an annual membership fee as well as a fee each time they golf. One reason for this is

Accepted Answer

A)   golf courses do not want their members to overuse their fairways. Charging for each round of golf played reduces fairway maintenance costs.
B)   charging both fees allows the courses to transfer more consumer surplus into profit than charging only an admission fee.
C)   charging both fees allows the courses to transfer more producer surplus into profit than charging only an admission fee.
D)   research has shown that charging both fees increases the likelihood that golfers will renew their memberships.

Question 4

Yield management is the practice of

Accepted Answer

A)   determining production functions to minimize production costs.
B)   forecasting competitors' responses to price changes.
C)   using buyer data to rapidly adjust prices.
D)   using information technology to find the best interest rate.

Question 5

The Bay Area subway system, BART, offers senior citizens discounted fares for BART rides. This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

Accepted Answer

A)   more income elastic
B)   less income elastic
C)   more price elastic
D)   less price elastic

Question 6

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150, what is the firm's markup?

Accepted Answer

A)   75 percent
B)   33.33 percent
C)   25 percent
D)   impossible to determine with the information given

Question 7

Book publishers use price discrimination routinely, but the form of price discrimination they use is different from the form used by airlines and other industries. Explain.

Accepted Answer

Some consumers in some markets are willi...

Question 8

Erin and Deidre, two residents of Ithaca, New York, are planning a trip to Boston. Erin, the sales manager for a large retailer, has to attend a business meeting. Deidre, a college student on vacation, is planning a leisurely trip to visit friends and relatives. Which of the following statements is true?

Accepted Answer

A)   An airline that price discriminates will charge Erin a higher price.
B)   An airline that price discriminates will charge Deidre a higher price.
C)   Since there is no difference in the cost of producing air travel, airlines will not charge different prices to Erin and Deidre.
D)   An airline cannot price discriminate because buyers can resell their tickets through the Internet.

Question 9

Table 16-1
  Table 16-1 shows the price for the hardcover version of the novel Inferno by Dan Brown at four online bookstores.
-Refer to Table 16-1. Which of the following can one conclude from the data above?

Accepted Answer

A)   The data provides clear evidence of price discrimination in online bookstore market.
B)   Amazon.com and Walmart.com are able to charge a lower price for the item because they are more cost efficient than the other two companies.
C)   The items offered for sale are similar but not identical; the quality of service and delivery time might vary from store to store, which justifies the price differences.
D)   Walmart.com and Amazon.com have deliberately underpriced their product to force the other two companies out of business.

Question 10

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

Accepted Answer

A) True 
 B)False

Question 11

With an optimal two-part tariff,

Accepted Answer

A)   consumer surplus equals producer surplus.
B)   all consumer surplus is transformed into profit.
C)   consumers maximize consumer surplus.
D)   the firm earns zero profit.

Question 12

Figure 16-5 
-Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price. What is the quantity it should produce?

Accepted Answer

A)   240 units
B)   320 units
C)   480 units
D)   560 units

Question 13

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

Accepted Answer

A) True 
 B)False

Question 14

Table 16-2
  Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube.
-Refer to Table 16-2. What is the total revenue received from both markets combined?

Accepted Answer

A)   $30
B)   $34
C)   $68
D)   $70

Question 15

A price-discriminating firm charges the highest price to

Accepted Answer

A)   the group with the largest demand.
B)   the group with the most elastic demand.
C)   the group with the least elastic demand.
D)   the group with demand that is unit-elastic.

Question 16

If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is

Accepted Answer

A)   $40.
B)   $50.
C)   $52.
D)   $65.

Question 17

All of the following are disadvantages of cost-plus pricing except

Accepted Answer

A)   It ignores the price elasticity of demand: for example, it may be possible to increase profits by raising or lowering price.
B)   If the industry comprises identical firms (with identical costs) , markups could be consistent among firms leading to no one firm having a competitive edge in terms of price.
C)   Allocating and apportioning business overheads to individual products could be somewhat arbitrary.
D)   The business has less incentive to cut or control costs: if costs increase, then selling prices increase. Consequently, this might further erode a firm's competitiveness.

Question 18

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn. Which of the following is a reason for this?

Accepted Answer

A)   because the markup on movie popcorn is very high and movie theatres do not want to forego this source of revenue
B)   because the demand for popcorn is very high relative to the demand for movie admissions
C)   because it is easier to limit resale in movie admissions but not in popcorn
D)   because the cost of operating a concession stand in a movie theatre is very high compared to the cost of showing a movie

Question 19

Firms engage in odd pricing when they charge prices that appear to be less than they really are; for example, charging a price of $4.95 instead of $5.00 and $.99 instead of $1.00. How have researchers tried to determine whether odd pricing is successful in convincing consumers that odd prices are less than they really are?

Accepted Answer

Three researchers used surveys to answer...

Question 20

Figure 16-6  Watanabe Sensei operates the only martial arts school in Hartfield. For simplicity, assume that consumers have identical demand curves and that Sensei knows what this demand curve is. Figure 16-6 shows this demand curve.
-Refer to Figure 16-6. With a two-part pricing scheme-a monopoly price for classes and a one-time membership fee-what is the amount of producer surplus Sensei will earn?

Accepted Answer

A)   an amount equal to the area A + B + C + D
B)   an amount equal to the area E + F
C)   an amount equal to the area A + C + H
D)   an amount equal to the area A + B + C + D + H + G

Exam 16: Pricing Strategy

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150, what is the firm's markup?

Correct Answer
verified

If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is

Correct Answer
verified

Correct Answer
verified

Book publishers use price discrimination routinely, but the form of price discrimination they use is different from the form used by airlines and other industries. Explain.

Correct Answer
verified
Some consumers in some markets are willi...
View Answer

Table 16-1 Table 16-1 shows the price for the hardcover version of the novel Inferno by Dan Brown at four online bookstores. -Refer to Table 16-1. Which of the following can one conclude from the data above?

Correct Answer
verified

Correct Answer
verified
Three researchers used surveys to answer...
View Answer

Table 16-2 Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube. -Refer to Table 16-2. What is the total revenue received from both markets combined?

Correct Answer
verified

Many golf courses charge members an annual membership fee as well as a fee each time they golf. One reason for this is

Correct Answer
verified

With an optimal two-part tariff,

Correct Answer
verified

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

Correct Answer
verified

All of the following are disadvantages of cost-plus pricing except

Correct Answer
verified

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

Correct Answer
verified

The Bay Area subway system, BART, offers senior citizens discounted fares for BART rides. This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

Correct Answer
verified

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn. Which of the following is a reason for this?

Correct Answer
verified

Correct Answer
verified

A price-discriminating firm charges the highest price to

Correct Answer
verified

Yield management is the practice of

Correct Answer
verified

Figure 16-5 -Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price. What is the quantity it should produce?

Correct Answer
verified

Draw a graph that shows producer surplus, consumer surplus, and deadweight loss in a market where the seller practices perfect price discrimination. Be sure to identify the demand curve, the marginal revenue curve, the marginal cost curve, and the profit maximizing quantity on the graph.

Correct Answer
verified
The perfect price discriminator sells Q3...
View Answer

Which of the following is not a requirement for a successful price discrimination strategy?

Correct Answer
verified

Exam 16: Pricing Strategy

If the selling price of a firm's product is $200 and the estimated average cost of producing this product is $150, what is the firm's markup?

Correct AnswerverifiedShow Answer

If, at the firm's projected sales level, the marginal cost is $40, the average cost is $50 and the markup is 30 percent, then its selling price is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Book publishers use price discrimination routinely, but the form of price discrimination they use is different from the form used by airlines and other industries. Explain.

Correct AnswerverifiedSome consumers in some markets are willi...View AnswerShow Answer

Table 16-1 Table 16-1 shows the price for the hardcover version of the novel Inferno by Dan Brown at four online bookstores. -Refer to Table 16-1. Which of the following can one conclude from the data above?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThree researchers used surveys to answer...View AnswerShow Answer

Table 16-2 Neem Products sells its Ayurvedic Neem toothpaste in two completely isolated markets with demand schedules as shown in Table 16-2. The average cost of production is constant at $2 per tube. -Refer to Table 16-2. What is the total revenue received from both markets combined?

Correct AnswerverifiedShow Answer

Many golf courses charge members an annual membership fee as well as a fee each time they golf. One reason for this is

Correct AnswerverifiedShow Answer

With an optimal two-part tariff,

Correct AnswerverifiedShow Answer

The act of buying a product at a low price in one market and reselling the product at a higher price in another market is called arbitrage.

Correct AnswerverifiedShow Answer

All of the following are disadvantages of cost-plus pricing except

Correct AnswerverifiedShow Answer

Both first-degree price discrimination and optimal two-part tariff pricing maximize economic surplus.

Correct AnswerverifiedShow Answer

The Bay Area subway system, BART, offers senior citizens discounted fares for BART rides. This suggests that BART authorities believe that senior citizens have a ________ demand for subway rides.

Correct AnswerverifiedShow Answer

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn. Which of the following is a reason for this?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A price-discriminating firm charges the highest price to

Correct AnswerverifiedShow Answer

Yield management is the practice of

Correct AnswerverifiedShow Answer

Figure 16-5 -Refer to Figure 16-5. Suppose the firm represented in the diagram decides to use a two-part pricing strategy such that it charges a fixed fee and a per-unit price equal to the monopoly price. What is the quantity it should produce?

Correct AnswerverifiedShow Answer

Draw a graph that shows producer surplus, consumer surplus, and deadweight loss in a market where the seller practices perfect price discrimination. Be sure to identify the demand curve, the marginal revenue curve, the marginal cost curve, and the profit maximizing quantity on the graph.

Correct AnswerverifiedThe perfect price discriminator sells Q3...View AnswerShow Answer

Which of the following is not a requirement for a successful price discrimination strategy?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Some consumers in some markets are willi...
View Answer

Correct Answer
verified

Correct Answer
verified
Three researchers used surveys to answer...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The perfect price discriminator sells Q3...
View Answer

Correct Answer
verified